The document provides additional details on CBO's 2010 long-term projections for Social Security. Key findings include:
1) Social Security outlays are projected to exceed tax revenues starting in 2016 and the trust funds are estimated to be exhausted by 2039 under current law.
2) Uncertainty in the projections is substantial, with an 80% range of uncertainty shown for some measures.
3) Scheduled benefits are calculated under current law regardless of trust fund balances, while payable benefits would be reduced if balances are depleted.
4) The distribution of lifetime taxes paid and benefits received varies significantly based on factors like birth year and lifetime earnings.
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Social Security Tax Revenues and Outlays Projected to Exceed Revenues Starting in 2016
1. CONGRESS OF THE UNITED STATES
CONGRESSIONAL BUDGET OFFICE
CBO
CBO’s 2010
Long-Term
Projections for
Social Security:
Additional
Information
Percentage of GDP
9
Actual Projected
8 Outlays
7
6
5
4 Tax Revenues
3
2
1
0
1985 1994 2003 2012 2021 2030 2039 2048 2057 2066 2075 2084
OCTOBER 2010
3. CBO
CBO’s 2010 Long-Term Projections for
Social Security: Additional Information
October 2010
The Congress of the United States O Congressional Budget Office
4. Notes and Definitions
Unless otherwise noted, all years referred to are calendar years. Numbers in the text and tables may not add up to totals because of
rounding. Supplemental data are posted on CBO’s Web site (www.cbo.gov).
80 percent range of uncertainty: A range of uncertainty based on a distribution of 500 simulations from CBO’s long-term model.
Outcomes were above the range in 10 percent of the simulations, below the range in 10 percent, and within the range in 80 percent.
Median: The middle of the distribution. When the median outcome for a group of people (defined in this document by birth cohort and
lifetime earnings category) is shown, the value is lower for half of the people in that group and higher for half of the group.
Present value: A single number that expresses a flow of current and future income, or payments, in terms of an equivalent lump sum
received or paid today.
Cost rate: The present value of outlays for a period, plus the present value of a year’s worth of benefits as a reserve at the end of the
period, divided by the present value of the stream of gross domestic product (or taxable payroll) over the same period.
Income rate: The present value of tax revenues for a period, plus the trust funds’ initial balance, divided by the present value of the
stream of gross domestic product (or taxable payroll) over the same period.
Actuarial balance: The difference between the income rate and the cost rate.
Scheduled benefits: Full benefits as calculated under current law, regardless of the amounts available in the Social Security trust funds.
Payable benefits: Benefits as calculated under current law, reduced as necessary to make outlays equal the Social Security system’s
revenues. Upon exhaustion of the Social Security trust funds, the Social Security Administration would reduce all scheduled benefits
such that outlays from the funds would equal revenues flowing into the funds.
CBO
5. Preface
T his Congressional Budget Office (CBO) publication provides additional information about long-term
projections of the Social Security program’s finances that were included in The Long-Term Budget Outlook
(June 2010, revised August 2010) and in Social Security Policy Options (July 2010). Those projections, which
cover the 75-year period spanning 2010 to 2084, and the additional information presented in this document update
projections CBO prepared last year and reported in CBO’s Long-Term Projections for Social Security: 2009 Update.
The analysis was prepared by Noah Meyerson, Charles Pineles-Mark, Jonathan Schwabish, Michael Simpson, and
Julie Topoleski of CBO’s Long-Term Modeling Group under the supervision of Joyce Manchester.
Kate Kelly edited the document and Sherry Snyder proofread it. Maureen Costantino designed the cover and,
with assistance from Jeanine Rees, prepared the document for publication. Monte Ruffin produced the initial
printed copies, Linda Schimmel handled the print distribution, and Simone Thomas produced the electronic
version for CBO’s Web site (www.cbo.gov).
Douglas W. Elmendorf
Director
October 2010
CBO
6. List of Exhibits
Exhibit Page
1. Social Security Tax Revenues and Outlays, with Scheduled Benefits (Figure) 5
2. Social Security Tax Revenues and Outlays, with Scheduled Benefits (Table) 6
3. Percentage of Simulations in Which Social Security Outlays Exceed Tax Revenues by Specified Percentages, with Scheduled Benefits 7
4. Social Security Tax Revenues and Outlays, with Scheduled and Payable Benefits 8
5. Summarized Financial Measures for Social Security Under the Extended-Baseline Scenario, with Scheduled Benefits 9
6. Summarized Financial Measures for Social Security Under the Alternative Fiscal Scenario, with Scheduled Benefits 10
7. Trust Fund Ratio, with Scheduled Benefits 11
8. Percentage of Simulations That Show the Social Security Trust Funds Exhausted by a Particular Year 12
9. Median Initial Benefits for Retired Workers, with Scheduled and Payable Benefits 13
10. Median Initial Replacement Rates for Retired Workers, with Scheduled and Payable Benefits 14
11. Median Present Value of Lifetime Benefits for Retired Workers, with Scheduled and Payable Benefits 15
12. Median Benefits and Initial Replacement Rates for Disabled Workers, with Scheduled and Payable Benefits 16
13. Potential Range of Lifetime Social Security Payroll Taxes 17
14. Potential Range of Lifetime Social Security Benefits, with Scheduled and Payable Benefits 18
15. Potential Range of Lifetime Benefit-to-Tax Ratios, with Scheduled and Payable Benefits 19
16. Percentage of Simulations in Which Payable Benefits Exceed Specified Percentages of Scheduled Benefits 20
CBO
7. CBO’s 2010 Long-Term Projections for
Social Security: Additional Information
Social Security is the federal government’s largest employers at 6.2 percent apiece. Self-employed the enactment of the Social Security Amendments
single program.1 About 54 million people currently workers pay the entire 12.4 percent tax on earnings of 1983. Over the next few years, the Congressional
receive Social Security benefits. About 69 percent themselves. The payroll tax applies only to taxable Budget Office (CBO) projects, the program’s tax
are retired workers, their spouses, and children and earnings—earnings up to a maximum annual revenues will be approximately equal to its outlays.
another 12 percent are survivors of deceased work- amount ($106,800 in 2010). Some Social Security However, as more of the baby-boom generation
ers; all of those beneficiaries receive payments benefits also are subject to taxation: In fiscal year (that is, people born between 1946 and 1964)
through Old-Age and Survivors Insurance (OASI). 2010, about 3 percent of Social Security’s tax reve- enters retirement, outlays will increase relative to
The other 19 percent are disabled workers or their nues came from the income taxes that higher- the size of the economy, whereas tax revenues
spouses and children; they receive Disability Insur- income beneficiaries paid on their Social Security will remain at an almost constant share of the econ-
ance (DI) benefits. Social Security’s outlays in fiscal benefits. Tax revenues credited to the program omy. Starting in 2016, CBO projects, outlays as
year 2010 totaled $706 billion, one-fifth of the totaled $670 billion in that year. scheduled under current law will regularly exceed
federal budget; OASI payments accounted for tax revenues.
82 percent of those outlays and DI payments made Revenues from taxes, along with intragovern-
up about 18 percent. mental interest payments, are credited to Social CBO projects that the DI trust fund will be
Security’s two trust funds—one for OASI and one exhausted in 2018 and that the OASI trust fund
Social Security has two primary sources of tax reve- for DI—and the program’s benefits and adminis- will be exhausted in 2042. Once a trust fund’s bal-
nues: payroll taxes and income taxes on benefits. In trative costs are paid from those funds. Legally, the ance has fallen to zero and current revenues are
fiscal year 2010, roughly 97 percent of tax revenues funds are separate, but they often are described insufficient to cover the benefits that are specified
dedicated to Social Security were collected from a collectively as the OASDI trust funds. In a given in law, a program will be unable to pay full benefits
payroll tax of 12.4 percent that is levied on year, the sum of receipts to a fund along with the without changes in law. The DI trust fund came
earnings and split evenly by workers and their interest that is credited on previous balances, less close to exhaustion in 1994, but that outcome was
spending for benefits and administrative costs, prevented by legislation that redirected revenue
constitutes that fund’s surplus or deficit. from the OASI trust fund to the DI trust fund. In
1. For a description of the Social Security program, see
part because of that experience, it is a common
Congressional Budget Office, Social Security Policy Options In calendar year 2010, Social Security’s outlays will
(July 2010), “An Overview of Social Security,” pp.1–4. analytical convention to consider the DI and OASI
exceed tax revenues (that is, the trust funds’ trust funds as combined. CBO projects that, if leg-
Social Security’s financing and trust funds are discussed on
pp. 3–5 of that study. receipts excluding interest) for the first time since islation to shift resources from the OASI trust fund
CBO
8. CBO’S 2010 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 2
to the DI trust fund was enacted, the combined closely to current law. For example, that scenario CBO generally focuses on scheduled benefits
OASDI trust funds would be exhausted in 2039. reflects the assumption that the tax cuts enacted in because, by definition, the system would be fully
2001 and 2003 expire as scheduled at the end of financed if only payable benefits are disbursed.
The amount of Social Security taxes paid by vari- 2010. CBO also has developed an alternative fiscal
ous groups of people differs, as do the benefits that scenario, which incorporates several changes to Quantifying Uncertainty
different groups receive. For example, people with current law that are widely expected to occur or To quantify the amount of uncertainty in its Social
higher earnings pay more in Social Security payroll that would modify some provisions of law that Security projections, CBO created a distribution of
taxes than do lower-earning participants, and they might be difficult to sustain for a long period. outcomes from 500 simulations using its long-term
also receive larger benefits (although not propor- Unless otherwise noted, the projections presented model. In those simulations, the assumed values for
tionately larger). Because of the progressive nature in this analysis are based on the assumptions of the most of the key demographic and economic factors
of Social Security’s benefit formula, replacement extended-baseline scenario. In that scenario, that underlie the analysis—for example, fertility
rates—the amount of annual benefits as a percent- income taxes, including the income taxes on Social and mortality rates, interest rates, and the rate of
age of annual lifetime earnings—are lower, on Security benefits that are credited to the trust growth of productivity—were varied on the basis
average, for workers who have had higher earnings. funds, are higher than they are in the alternative of historical patterns of variation.3 Several of the
As another example, the amount of taxes paid and fiscal scenario. exhibits in this publication show the simulations’
benefits received will be greater for people in later
80 percent range of uncertainty: That is, in 80 per-
birth cohorts because they typically will have Scheduled and Payable Benefits cent of the 500 simulations, the value in question
higher earnings over a lifetime, even after adjusting
CBO prepared two types of benefit projections. fell within the range shown; in 10 percent of the
for inflation, CBO projects. However, replacement
Benefits as calculated under the Social Security simulations, the values were above that range;
rates will be slightly lower, on average, for people
Act, regardless of the balances in the trust funds, and in 10 percent they were below. Long-term
in later birth groups because their full retirement
are called scheduled benefits. The Social Security projections are necessarily uncertain, and that
age (the age at which they can receive unreduced
Administration has no legal authority to pay sched- uncertainty is illustrated in this publication;
retirement benefits) will be higher.
uled benefits if their amounts exceed the balances nevertheless, the general conclusions of this analy-
in the trust funds, however. Therefore, if the trust sis hold true under a variety of assumptions.
funds became exhausted, payments to current and
About This Analysis new beneficiaries would need to be reduced to System Finances
CBO regularly prepares long-term projections make the outlays from the funds equal the revenues The first part of this publication (Exhibits 1
of revenues and outlays for the Social Security flowing into the funds.2 Benefits thus reduced are through 8) examines Social Security’s financial
program. The most recent projections, for the called payable benefits. In such a case, all receipts to status from several vantage points. The fullest per-
75 years from 2010 through 2084, were published the trust funds would be used and the trust fund spective is provided by projected streams of annual
in Chapter 3 of The Long-Term Budget Outlook balances would remain essentially at zero. When revenues and outlays. A more succinct analysis is
(June 2010, revised August 2010). This publica- presenting projections of Social Security’s finances,
tion presents additional information about those
projections. 3. For more information, see Congressional Budget Office,
2. See Kathleen Romig, Social Security: What Would Happen Quantifying Uncertainty in the Analysis of Long-Term Social
The budget projections published in The Long- If the Trust Funds Ran Out? Report for Congress RL33514 Security Projections, Background Paper (November 2005).
Term Budget Outlook involved two scenarios: The (Congressional Research Service, updated August 20, The methodology used here differs slightly from the
first, CBO’s extended-baseline scenario, adheres 2009). techniques described in that report.
CBO
9. CBO’S 2010 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 3
given by measures that summarize the annual each group: Estimates for half of the people in the differences are attributable to changes both in
streams in a single number. The system’s finances group are lower and estimates for half are higher. projected outlays and in projected revenues. The
are also described by projecting what is called the 75-year cost rate—a measure of outlays—is about
trust fund ratio, the amount in the trust funds at Most retired and disabled workers receive Social 2 percent higher under both scenarios because of
the beginning of a year in proportion to the outlays Security benefits on the basis of their own work his- near-term economic weakness, slightly lower
in that year. tory. This publication first presents measures of projections of real (inflation-adjusted) growth in
those benefits that do not include benefits received wages, and technical changes in modeling meth-
The Distribution of Benefits by dependents or survivors who are entitled on the ods. The projected 75-year income rate—a
basis of another person’s work history. Then, for a measure of Social Security’s revenues—is slightly
In the second part (Exhibits 9 through 16), CBO
more comprehensive perspective on the distribution higher than CBO estimated in 2009 under the
examines the program’s effects on people by
of Social Security benefits, this analysis presents extended-baseline scenario because income taxes
grouping Social Security participants by various
measures of the total amount of Social Security pay- on benefits are projected to be higher as a share
characteristics and presenting the average taxes and
roll taxes that each participant pays over his or her of benefits. However, the income rate is about
benefits for those groups. In its analysis, CBO
lifetime as well as the total Social Security bene- 1 percent lower than in 2009 under the alternative
divided people into groups by the decade in which
fits—including payments received as a worker’s fiscal scenario because income taxes on benefits are
they were born and by the quintile of their lifetime
dependent or survivors—that each receives over a projected to equal a smaller share of benefits.
household earnings.4 For example, one 10-year
lifetime.
cohort consists of people born in the 1940s, and
the top fifth of earners constitutes the highest earn-
ings quintile. CBO’s modeling approach produces Related CBO Analyses
estimates for individuals; household status is used
Changes in CBO’s Long-Term Further information about Social Security and
only to place people into earnings groups. Social Security Projections CBO’s projections is available in other CBO
In this part of the analysis, benefits are calculated
Since 2009 publications:
The shortfalls for Social Security that CBO is Various approaches to changing the program
net of income taxes paid on benefits by higher- B
currently projecting are larger than the shortfalls are presented in Social Security Policy Options
income recipients and credited to the Social Secu-
projected in CBO’s Long-Term Projections for Social
rity trust funds.5 Median values are estimated for (July 2010).
Security: 2009 Update (August 2009). The 75-year
imbalance has increased from 1.3 percent to B The current long-term projections are consis-
4. Each person who lives at least to age 45 is ranked by life- 1.6 percent of taxable payroll under the extended- tent with the 10-year baseline CBO published
time household earnings. Lifetime earnings for someone baseline scenario (see Exhibit 5) and from 1.5 per- in A Preliminary Analysis of the President’s
who is single in all years equals the present value of his or cent to 2.1 percent of taxable payroll under the Budgetary Proposals for Fiscal Year 2011 (March
her real earnings over a lifetime. In any year a person is
alternative fiscal scenario (see Exhibit 6). Those 2010). (Data in that report and in The Long-
married, the earnings measure is a function of his or her
earnings plus those of his or her spouse (adjusted for Term Budget Outlook are generally presented for
economies of scale in household consumption). A person’s 5. Benefits are not reduced by the portion of those income fiscal years; this analysis and Social Security
lifetime earnings consist of the present value of those taxes that is credited to the Medicare Hospital Insurance Policy Options use calendar-year data.)
annual amounts. trust fund.
CBO
10. CBO’S 2010 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 4
B The current projections update those in B The methodology used to develop the projec- B Numerous other aspects of the program are
CBO’s Long-Term Projections for Social Security: tions in this publication is described in CBO’s addressed in various publications available
2009 Update. Differences in the two sets of Long-Term Model: An Overview, a background from CBO’s Web site.
projections are the result of newly available paper published in June 2009.
programmatic and economic data, updated
assumptions about future economic trends, and B Appendix B of The Long-Term Budget Outlook
improvements in models. This current set of offers an explanation of the values used for the
projections also incorporates the effects of the demographic and economic variables under-
health care legislation passed in March 2010.6 lying the projections. (As was the case for
CBO’s 2009 projections, the projections in this
7. See Social Security Administration, The 2009 Annual
publication are based on the demographic Report of the Board of Trustees of the Federal Old-Age and
6. The Patient Protection and Affordable Care Act (Public assumptions of the 2009 report of the Social Survivors Insurance and Federal Disability Insurance Trust
Law 111-148) and the Health Care and Education Security trustees.)7 Funds (May 12, 2009), www.ssa.gov/OACT/TR/2009/
Reconciliation Act of 2010 (P.L. 111-152). tr09.pdf.)
CBO
11. CBO’S 2010 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 5
Exhibit 1.
In 2009, Social Security’s total outlays (bene-
Social Security Tax Revenues and Outlays, with Scheduled Benefits fits plus administrative costs) equaled 4.8 per-
cent of the country’s gross domestic product
(Percentage of gross domestic product)
(GDP); tax revenues equaled 4.9 percent of
9 GDP. Most of the program’s tax revenues come
Actual Projected
Outlaysb from Social Security payroll taxes, although a
8
small portion comes from income taxes on
7 benefits paid to higher-income beneficiaries.
Tax Revenuesa In addition to those tax revenues, the trust
6
funds are credited with interest. Over the next
5 few years, outlays will approximately equal tax
revenues, CBO projects.
4
Tax Revenuesa By 2034, as the baby-boom generation ages
3 and the number of beneficiaries grows, sched-
Outlaysb
2 uled spending will climb to 6.2 percent of
GDP, CBO estimates. Over the ensuing two
1 decades, spending will decline slightly, relative
0
to the size of the economy, as people in the
1985 1994 2003 2012 2021 2030 2039 2048 2057 2066 2075 2084 baby-boom generation die. Demographers
generally predict that life expectancy will con-
Source: Congressional Budget Office. tinue to rise and that birth rates will remain as
Note: The lines indicate CBO’s projections of expected outcomes. The shaded areas indicate the 80 percent they are now, so scheduled outlays are pro-
range of uncertainty. jected to resume their upward trajectory after
a. Includes payroll taxes and income taxes on benefits. 2050, reaching 6.4 percent of GDP in 2084.
b. Includes scheduled benefits and administrative costs. The amount of tax revenues credited to the
trust funds is likely to stay almost constant as a
share of GDP over the next 75 years, edging
up from 4.9 percent of GDP in 2009 to
5.0 percent in 2084. CBO projects that
although people’s total compensation will be
nearly constant as a percentage of GDP,
taxable earnings will decline relative to GDP.
Revenues from payroll taxes thus will fall
slightly as a share of GDP, from 4.8 percent in
(Continued)
CBO
12. CBO’S 2010 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 6
Exhibit 2. (Continued)
Social Security Tax Revenues and Outlays, with Scheduled Benefits 2009 to 4.4 percent in 2084. However, that
drop will be offset by growth in the revenues
(Percentage of gross domestic product)
credited to the Social Security trust funds from
Actual Projected income taxes on the program’s benefits.
2009 2034 2059 2084
Tax Revenues 4.92 4.93 4.93 4.99 The uncertainty in these projections is illus-
Outlays 4.79 6.18 5.99 6.37 trated by the range of the outcomes from a
Difference 0.13 -1.25 -1.06 -1.37 series of 500 simulations that vary most of the
key demographic and economic factors in
80 Percent Range of Uncertainty for CBO's Projections
the analysis according to historical patterns.
Tax Revenues 4.8 to 5.0 4.8 to 5.1 4.8 to 5.2
Although CBO projects that the program’s
Outlays 5.4 to 7.3 4.9 to 7.7 5.1 to 8.8
outlays will equal 6.2 percent of GDP in 2034,
Differencea -2.3 to -0.5 -2.7 to 0.0 -3.9 to -0.3
in 10 percent of the simulations outlays in
2034 are below 5.4 percent of GDP and in
Source: Congressional Budget Office.
10 percent they exceed 7.3 percent of GDP.
Note: Tax revenues consist of payroll taxes and income taxes on benefits that are credited to the Social Security In most simulations, outlays in 2034 are pro-
trust funds in the specified year. Outlays consist of scheduled benefits and administrative costs; scheduled jected to account for a much larger share of
benefits are benefits as calculated under the Social Security Act, regardless of the balances in the trust
GDP than the current 4.8 percent.
funds.
a. The differences displayed generally do not equal the difference between the outlays and revenues shown Because payroll taxes are a fixed share of tax-
because each value is drawn from a different simulation. able earnings and because earnings generally
grow with GDP, there is less uncertainty about
tax revenues as a share of GDP than there is
about outlays. However, the range of uncer-
tainty reported here—about half that shown in
CBO’s Long-Term Projections for Social
Security: 2009 Update—understates the true
uncertainty. To incorporate the effects of the
health care legislation enacted in March 2010,
CBO updated its projections of the share of
compensation that will be paid in wages sub-
ject to payroll taxes. That change has not
been incorporated into the uncertainty model,
so—unlike CBO’s past publications—this
publication’s uncertainty analysis does not
account for variation in that share.
CBO
13. CBO’S 2010 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 7
Exhibit 3.
Another perspective on the uncertainty in
Percentage of Simulations in Which Social Security Outlays Exceed projections of Social Security’s finances
involves the percentage of CBO’s simulations
Tax Revenues by Specified Percentages, with Scheduled Benefits in which total outlays exceed tax revenues by a
(Percent) given amount in a particular year. In the 500
By 0 Percent of By 1 Percent of By 2 Percent of By 3 Percent of By 4 Percent of By 5 Percent of simulations, most of the key demographic and
GDP or More GDP or More GDP or More GDP or More GDP or More GDP or More economic factors in the analysis vary according
2020 86 5 0 0 0 0 to historical patterns. In 99 percent of them,
2030 99 63 13 1 0 0 outlays equal or exceed tax revenues in 2030.
2040 98 66 19 3 0 0 Outlays are at least 1 percentage point of GDP
2050 93 55 19 4 1 0 greater than tax revenues in 63 percent of sim-
2060 91 56 23 8 2 0 ulations for that year and at least 2 percentage
2070 92 61 30 12 4 1 points greater in 13 percent of those simula-
2080 93 68 33 13 6 3 tions. The percentage of simulations in which
outlays equal or exceed tax revenues is slightly
Source: Congressional Budget Office. lower after 2035, when many members of the
Notes: Tax revenues consist of payroll taxes and income taxes on benefits that are credited to the Social Security baby-boom generation will have died, but that
trust funds in the specified year. Outlays consist of scheduled benefits and administrative costs; scheduled value is still above 90 percent. As uncertainty
benefits are benefits as calculated under the Social Security Act, regardless of the balances in the trust about outlays increases, the percentage of
funds. This analysis is based on 500 simulations from CBO’s long-term model. simulations in which outlays exceed tax reve-
GDP = gross domestic product. nues by at least 2 percentage points of GDP
rises, reaching 33 percent by 2080.
CBO
14. CBO’S 2010 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 8
Exhibit 4.
The projected gap between outlays and reve-
Social Security Tax Revenues and Outlays, with Scheduled and nues ultimately will eliminate the balance in
the trust funds and make it impossible, under
Payable Benefits current law, to pay the full amount of sched-
(Percentage of gross domestic product) uled benefits. Payable benefits will equal
scheduled benefits until the trust funds are
7
Actual Projected exhausted; after that, they will equal the Social
Outlays with Scheduled Benefitsb
6 Security program’s annual revenues. In 2039—
CBO’s projected date for the exhaustion of the
5 trust funds—revenues equal 79 percent of
Tax Revenuesa scheduled outlays in CBO’s projections. Thus,
4 Outlays with Payable Benefitsb
Outlaysb payable benefits will be 21 percent lower than
scheduled benefits. The gap between sched-
3
uled and payable benefits will then shrink
2
slightly for a decade, falling to 19 percent. It
will then begin to widen slightly in about
1 2055, and by 2084, payable benefits will be
24 percent smaller than scheduled benefits.
0
1985 1994 2003 2012 2021 2030 2039 2048 2057 2066 2075 2084
Source: Congressional Budget Office.
a. Includes payroll taxes and income taxes on benefits. Tax revenues shown are consistent with payable benefits
and would decline slightly if the trust funds became exhausted because revenues from taxation of benefits
would decline.
b. Includes benefits and administrative costs.
CBO
15. CBO’S 2010 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 9
Exhibit 5.
To present the results of long-term projections
Summarized Financial Measures for Social Security Under the succinctly, analysts often summarize scheduled
outlays and revenues as a single number that
Extended-Baseline Scenario, with Scheduled Benefits covers a given period (for example, total out-
As a Percentage of GDP As a Percentage of Taxable Payroll lays over 75 years). The data are summarized
Income Cost Actuarial Income Cost Actuarial by computing the present value of outlays or
Rate Rate Balance Rate Rate Balance tax revenues for a period and dividing that fig-
CBO's Projections ure by the present value of the stream of GDP
(or taxable payroll) over the same period.
25 Years (2010–2034) 5.66 5.61 0.06 15.24 15.09 0.15
(Present value is a single number that expresses
50 Years (2010–2059) 5.34 5.77 -0.42 14.55 15.70 -1.15
75 Years (2010–2084) 5.25 5.84 -0.60 14.39 16.03 -1.63 a flow of current and future income, or pay-
ments, in terms of an equivalent lump sum
a
80 Percent Range of Uncertainty for CBO's Projections received or paid today. That computation uses
25 Years (2010–2034) 5.6 to 5.8 5.1 to 6.1 -0.4 to 0.4 15.0 to 15.6 13.9 to 16.4 -1.0 to 1.1 the interest rate used to compute interest cred-
50 Years (2010–2059) 5.2 to 5.5 5.3 to 6.3 -0.9 to 0.0 14.3 to 14.8 14.5 to 17.2 -2.5 to -0.1 ited to the trust funds.) The income rate is the
75 Years (2010–2084) 5.2 to 5.4 5.4 to 6.5 -1.2 to -0.2 14.2 to 14.7 14.8 to 17.8 -3.2 to -0.5 summarized measure of revenues, and the cost
rate is the summarized measure of outlays. The
Source: Congressional Budget Office. actuarial balance is the difference between
Note: Over the relevant periods, the income rate is the present value of annual tax revenues (plus the initial trust the income and cost rates.
fund balance) and the cost rate is the present value of annual outlays (plus the present value of a year’s
This analysis focuses on CBO’s extended-
worth of benefits as a reserve at the end of the period), each divided by the present value of taxable
payroll or gross domestic product (GDP). The actuarial balance is the difference between the income and
baseline scenario, which adheres closely to cur-
cost rates. rent law. In that scenario, federal income tax
rates would increase over time, and the
a. The balances displayed generally do not equal the difference between the outlays and revenues shown
estimated 75-year actuarial balance would be
because each value is drawn from a different simulation.
-0.6 percent of GDP or -1.6 percent of taxable
payroll. That means, for example, that if the
Social Security payroll tax rate was increased
immediately and permanently by 1.6 percent-
age points—from the current rate of 12.4 per-
cent to 14.0 percent—or if scheduled benefits
were reduced by an equivalent amount, then
the trust funds’ projected balance at the end of
2084 would equal projected outlays for 2085.
CBO
16. CBO’S 2010 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 10
Exhibit 6.
This publication focuses mostly on CBO’s
Summarized Financial Measures for Social Security Under the extended-baseline scenario, which adheres
closely to current law. CBO also has made
Alternative Fiscal Scenario, with Scheduled Benefits long-term budget projections using an alterna-
tive fiscal scenario that incorporates several
As a Percentage of GDP As a Percentage of Taxable Payroll
changes to current law that are widely expected
Income Cost Actuarial Income Cost Actuarial
to occur or that would modify some provisions
Rate Rate Balance Rate Rate Balance
of law that might be difficult to sustain for a
CBO's Projections
long period. (Details of the two scenarios are
25 Years (2010–2034) 5.62 5.62 0.00 15.09 15.09 0.00
outlined in Table 1-1 of the 2010 edition of
50 Years (2010–2059) 5.25 5.78 -0.54 14.24 15.69 -1.46
75 Years (2010–2084) 5.11 5.86 -0.75 13.97 16.02 -2.06
The Long-Term Budget Outlook.)
80 Percent Range of Uncertainty for CBO's Projectionsa The financial outlook for Social Security is less
25 Years (2010–2034) 5.5 to 5.7 5.2 to 6.1 -0.4 to 0.4 14.8 to 15.4 13.9 to 16.4 -1.2 to 1.0
favorable under the alternative fiscal scenario
50 Years (2010–2059) 5.2 to 5.4 5.3 to 6.4 -1.0 to -0.2 14.0 to 14.5 14.5 to 17.2 -2.9 to -0.4 (shown in this exhibit) than under the
75 Years (2010–2084) 5.0 to 5.2 5.4 to 6.5 -1.3 to -0.4 13.7 to 14.3 14.8 to 17.8 -3.6 to -1.0 extended-baseline scenario (shown in
Exhibit 5). Income tax rates are assumed to be
Source: Congressional Budget Office. lower under the alternative fiscal scenario,
resulting in lower revenues from the taxation
Note: Over the relevant periods, the income rate is the present value of annual tax revenues (plus the initial trust
fund balance) and the cost rate is the present value of annual outlays (plus the present value of a year’s of Social Security benefits and therefore a
worth of benefits as a reserve at the end of the period), each divided by the present value of taxable lower Social Security income rate. Under the
payroll or gross domestic product (GDP). The actuarial balance is the difference between the income and alternative fiscal scenario, the 75-year income
cost rates. rate is 5.11 percent of GDP, compared with a
a. The balances displayed generally do not equal the difference between the outlays and revenues shown rate of 5.25 percent under the extended-
because each value is drawn from a different simulation. baseline scenario. As a result, the 75-year actu-
arial deficit is larger: 0.75 percent of GDP
under the alternative fiscal scenario, compared
with a deficit of 0.60 percent of GDP under
the extended-baseline scenario.
CBO
17. CBO’S 2010 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 11
Exhibit 7.
The trust fund ratio—the balance in the Social
Trust Fund Ratio, with Scheduled Benefits Security trust funds at the beginning of the
year divided by the system’s outlays projected
10
for that year—indicates the proportion of a
Actual Projected year’s cost that could be paid with the funds
5 available. The trust fund ratio for 2010 is 3.6,
but CBO projects that the ratio will decline
0 beginning in 2011, reaching zero in 2039; at
that point, payments to current and new bene-
-5 ficiaries would need to be reduced to make the
outlays from the funds equal to the revenues
-10
flowing into the funds. The year in which the
trust funds will be exhausted could differ sig-
-15
nificantly from CBO’s projection, however. In
10 percent of CBO’s simulations, the trust
funds will be exhausted in 2031 or earlier and
-20
in 10 percent they will be exhausted in 2057
-25
or later; in those simulations, most of the key
1985 1994 2003 2012 2021 2030 2039 2048 2057 2066 2075 2084
demographic and economic factors in the anal-
ysis were varied according to historical pat-
Source: Congressional Budget Office. terns. (The shaded area in the figure shows the
Note: The trust fund ratio is the ratio of the trust fund balance (the amount in the trust funds) at the beginning 80 percent range of uncertainty. The inter-
of a year to outlays in that year. Outlays consist of benefits and administrative costs. The trust funds are section between the shaded area and the hori-
exhausted when the trust fund ratio reaches zero. Under current law, the trust funds cannot incur negative zontal line at zero, spanning the years between
balances. The negative balances shown in this exhibit indicate a projected shortfall, reflecting the trust 2031 and 2057, corresponds to the 80 percent
funds’ inability to pay scheduled benefits out of current-law revenues. The dark line indicates CBO’s range of uncertainty about the year in which
projection of expected outcomes; the shaded area indicates the 80 percent range of uncertainty around
the trust funds will become exhausted.) The
the projection.
negative balances represent CBO’s estimates
of the cumulative amount of scheduled bene-
fits that cannot be paid from the program’s
current-law revenues (expressed as a ratio to
outlays in each year).
CBO
18. CBO’S 2010 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 12
Exhibit 8.
An alternative way to consider uncertainty is
Percentage of Simulations That Show the Social Security to examine the percentage of simulations in
which the trust funds are exhausted by a
Trust Funds Exhausted by a Particular Year specific year. In those simulations, most of the
key demographic and economic factors in
100
the analysis vary according to historical
patterns. In 37 percent of CBO’s simulations,
80 the funds are exhausted before 2035. In
84 percent of the simulations, the trust funds
are exhausted by 2050. In 97 percent of the
60
simulations, the trust funds are exhausted
by 2084.
40
20
0
2010 2016 2022 2028 2034 2040 2046 2052 2058 2064 2070 2076 2082
Source: Congressional Budget Office.
Note: The data are based on 500 simulations from CBO’s long-term model.
CBO
19. CBO’S 2010 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 13
Exhibit 9.
Future retired workers are likely to receive
Median Initial Benefits for Retired Workers, with Scheduled and higher initial annual Social Security benefits
than today’s beneficiaries receive, even with
Payable Benefits payable benefits and even after an adjustment
(Thousands of 2010 dollars) for the effects of inflation. With scheduled
benefits, the median initial benefit for each
Lowest Quintile of Middle Quintile of Highest Quintile of
10-Year Lifetime Household Lifetime Household Lifetime Household
birth cohort is projected to be higher than that
Birth All Retired Workers Earnings Earnings Earnings
for the preceding cohort. CBO considered a
Cohort Scheduled Payable Scheduled Payable Scheduled Payable Scheduled Payable hypothetical benefit amount: the median ben-
efit a worker would receive if everyone claimed
All
benefits at age 65, based on earnings through
1940s 17 17 9 9 19 19 25 25 age 61.
1960s 18 18 11 11 20 20 31 31
1980s 22 18 13 11 24 20 38 31 By itself, growth in average earnings leads to
2000s 29 23 18 14 32 25 50 40 higher scheduled initial benefits. However,
under current law, the growth of initial bene-
Men
fits for retired workers in several cohorts will
1940s 21 21 10 10 22 22 27 27 be offset somewhat by the scheduled rise in the
1960s 22 22 12 12 23 23 32 32 full retirement age, from 65 for people born
1980s 25 21 14 12 27 22 40 33 before 1938 to 67 for those born after 1959.
2000s 33 26 19 15 35 28 53 42 The effect is equivalent to a reduction in bene-
Women fits for any age at which benefits are claimed.
1940s 13 13 8 8 14 14 21 21
Once the older retirement age is in place,
1960s 16 16 10 10 17 17 26 26 median initial benefits will grow at approxi-
1980s 19 15 13 10 21 17 33 27 mately the same rate as average earnings.
2000s 25 20 16 13 28 22 45 36 When the trust funds are exhausted, payable
benefits will fall, CBO projects, but then they
Source: Congressional Budget Office. will rise again as earnings (and therefore tax
Note: Initial annual benefits are computed for all individuals who are eligible to claim retirement benefits at revenues) grow. Initial payable benefits are
age 62 and who have not yet claimed any other benefit. All workers are assumed to claim benefits at lower than scheduled benefits for people born
age 65. All values are net of income taxes paid on benefits and credited to the Social Security trust funds. in 1974 and later. Projected benefits are lower
for women than for men in all cohorts because
women have lower average earnings; the gap
narrows (as a share of average benefits) for later
cohorts because men’s and women’s earnings
are becoming more equal. For the 1940s
cohort, projected initial benefits for women
are about 40 percent below those for men, but
in the 1980s group they are about 25 percent
CBO below those for men.
20. CBO’S 2010 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 14
Exhibit 10.
Initial replacement rates—initial annual bene-
Median Initial Replacement Rates for Retired Workers, with fits as a percentage of average annual lifetime
earnings—provide a perspective on retired
Scheduled and Payable Benefits workers’ benefits that is different from that
(Percent) provided by looking simply at dollar amounts.
Lowest Quintile of Middle Quintile of Highest Quintile of The progressive nature of Social Security’s ben-
10-Year Lifetime Household Lifetime Household Lifetime Household
efit formula results in replacement rates that
Birth All Retired Workers Earnings Earnings Earnings
are higher for workers within a birth cohort
Cohort Scheduled Payable Scheduled Payable Scheduled Payable Scheduled Payable
who have had lower earnings. With payable
All
benefits, the replacement rate will drop notice-
1940s 45 45 71 71 43 43 31 31 ably at all earnings amounts for people in the
1960s 43 43 63 63 41 41 28 28 cohorts that first receive benefits after the trust
1980s 44 36 63 53 42 34 28 23
funds are exhausted.
2000s 42 33 62 50 41 33 26 21
Men
The scheduled increase in the full retirement
age will lower the replacement rate for future
1940s 40 40 64 64 39 39 25 25
beneficiaries (for any chosen age for claiming
1960s 39 39 59 59 39 39 22 22
1980s 40 33 59 50 40 33 23 19
benefits) compared with the rate for people
2000s 39 31 57 47 39 31 22 17 who are claiming benefits now. In particular, if
Social Security benefits are paid as scheduled,
Women the median replacement rate for beneficiaries
1940s 51 51 76 76 49 49 40 40 born in the 2000s (about 42 percent) will be
1960s 47 47 67 67 45 45 37 37 slightly lower than the rate for beneficiaries
1980s 48 39 68 56 45 37 36 30 born in the 1940s (about 45 percent), CBO
2000s 46 36 66 53 44 35 34 27 estimates. People in later cohorts, however, are
expected to collect benefits for a longer time as
Source: Congressional Budget Office. life expectancy increases.
Note: The average initial replacement rate is a worker’s initial benefit as a percentage of a worker’s average
annual lifetime earnings. (To compute lifetime earnings, past earnings are adjusted for average growth in Because women tend to have lower lifetime
economywide earnings.) Replacement rates are computed for all individuals who are eligible to claim earnings, their average replacement rates are
retirement benefits at age 62 and who have not yet claimed any other benefit. All workers are assumed to higher than men’s are, especially for earlier
claim benefits at age 65. All values are net of income taxes paid on benefits and credited to the Social birth cohorts. The difference between women
Security trust funds. and men in the highest quintile is large, in part
because that group includes many women who
spend time out of the labor force or who work
part time. In contrast, most men in households
with high earnings are employed full time.
CBO
21. CBO’S 2010 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 15
Exhibit 11.
Lifetime retirement benefits are the present
Median Present Value of Lifetime Benefits for Retired Workers, with value, discounted to the year in which the ben-
eficiary turns 62, of all retired-worker benefits
Scheduled and Payable Benefits that a worker receives from the program. CBO
(Thousands of 2010 dollars) estimates that real median lifetime benefits for
Lowest Quintile of Middle Quintile of Highest Quintile of each birth cohort will be greater than those for
10-Year Lifetime Household Lifetime Household Lifetime Household the preceding cohort, even with payable bene-
Birth All Retired Workers Earnings Earnings Earnings fits, because benefits grow with earnings. For
Cohort Scheduled Payable Scheduled Payable Scheduled Payable Scheduled Payable example, CBO estimates that median sched-
All uled lifetime benefits for people born in the
1940s 163 163 75 75 186 186 310 310 2000s will be almost double those for people
1960s 194 180 100 95 215 200 390 356 born in the 1940s in real terms; median pay-
1980s 232 188 124 104 266 215 481 395 able lifetime benefits for the 2000s cohort will
2000s 322 247 166 133 366 281 660 515 be about 50 percent greater.
Men The projected trends in median lifetime retire-
1940s 197 197 77 77 219 219 352 352 ment benefits differ from the trends in median
1960s 220 205 103 98 244 227 436 397 initial benefits for two reasons. First, as life
1980s 261 212 132 108 295 240 542 445 expectancy increases, people will collect bene-
2000s 363 277 175 137 405 311 730 570 fits for longer periods, so scheduled lifetime
Women benefits will grow faster than scheduled initial
1940s 142 141 72 72 155 155 249 248 benefits. Second, although cohorts that begin
1960s 175 162 96 91 192 177 320 291 to receive benefits before the trust funds are
1980s 210 170 117 98 240 195 397 324 exhausted will collect their scheduled benefits,
2000s 290 223 158 130 328 254 550 430 some members of those cohorts will still be
receiving benefits when the trust funds are
Source: Congressional Budget Office. exhausted. At that point, payable benefits
Note: Benefits are the present value of all retired-worker benefits received. To calculate their present value, will decline, and the payable lifetime benefits
benefits are adjusted for inflation (to produce constant dollars) and discounted to age 62. All values are for those recipients will be less than their
net of income taxes paid on benefits and credited to the Social Security trust funds. scheduled lifetime benefits.
Lifetime benefits are lower for women than for
men. However, the gap is smaller than it is
for initial benefits because women live longer,
on average, and thus tend to collect benefits
for a longer time.
CBO
22. CBO’S 2010 LONG-TERM PROJECTIONS FOR SOCIAL SECURITY: ADDITIONAL INFORMATION 16
Exhibit 12.
The projected trends for initial benefits for dis-
Median Benefits and Initial Replacement Rates for abled workers and retired workers are similar
(see also Exhibit 9): Future beneficiaries are
Disabled Workers, with Scheduled and Payable Benefits likely to receive higher initial annual benefits
Present Value of
than today’s beneficiaries receive. However, the
10-Year Initial Benefits Initial Replacement Lifetime Benefitsb scheduled increase in the full retirement age—
Birth (Thousands of 2010 dollars) Ratea (Percent) (Thousands of 2010 dollars) which will effectively reduce annual benefits
Cohort Scheduled Payable Scheduled Payable Scheduled Payable for retired workers—will have no direct effect
All Disabled Workers on people who receive disability benefits
because they can receive those benefits in any
1940s 13 13 47 47 228 228
1960s 16 16 52 52 216 212 year before they reach the full retirement age.
1980s 19 17 54 49 288 247 Thus, CBO projects that real initial disability
2000s 24 20 53 44 428 335 benefits (scheduled and payable) will increase
more rapidly than retirement benefits will.
Workers Whose Disability Begins Before Age 40
1940s * * * * * * Initial replacement rates tend to be higher for
1960s 10 10 58 58 250 250 disabled workers than for retired workers
1980s 12 12 60 60 447 437 (shown in Exhibit 10) because their earnings
2000s 16 15 58 53 640 538 tend to be lower. For the same reason, workers
Workers Whose Disability Begins Between Ages 40 and 54 who become disabled at earlier ages tend to
have lower benefits, but higher replacement
1940s * * * * * *
1960s 14 14 53 53 237 236 rates, than do those who become disabled
1980s 17 17 55 54 285 254 when they are older.
2000s 22 18 55 45 427 340
The median present value of lifetime benefits
Workers Whose Disability Begins Between Age 55 and the Full Retirement Age paid to disabled beneficiaries—including the
1940s 16 16 48 48 202 202 retirement benefits they receive after reaching
1960s 18 18 50 50 198 193 the full retirement age—is much greater than
1980s 22 18 52 43 266 215 the present value of lifetime benefits paid to
2000s 29 23 51 41 388 299 retired workers (shown in Exhibit 11), for two
reasons. First, disabled beneficiaries are
Source: Congressional Budget Office. younger when they begin to collect benefits, so
Notes: Initial annual benefits and replacement rates are computed for all individuals who are projected to receive they receive them for a longer period, on aver-
Disability Insurance worker benefits. All values are net of income taxes paid on benefits and credited to the age, than retired workers do. Second, because
Social Security trust funds. benefits are received at younger ages, their
* = no data are available for people who died before 1984. present value is greater. As with retirement
a. Initial annual benefits as a percentage of average annual lifetime earnings. benefits, projected lifetime disability benefits
b. The present value of all disability benefits received plus retired-worker benefits received after the full retirement age. are generally greater for each birth cohort than
To calculate present value, benefits are adjusted for inflation (to produce constant dollars) and discounted to age 62. for the preceding one.
CBO